Empirical Evaluation of The Pollution Haven Hypothesis for Seven Largest Emerging Economies within The Framework of The New Global Climate Agreements

Abstract

This study aims to determine whether the Pollution Haven Hypothesis (PHavenH), which suggests the negative impact of the FDI on environmental quality (EQ), is valid in seven selected emerging market economies for the period 1990-2020. To achieve this goal, the CO2 emission (CE) model includes renewable energy consumption (REC) in addition to the FDI variable. The elasticity coefficients of the model, in which cross-sectional dependence (CSD) and slope heterogeneity were determined, were estimated by the AMG method. The study found that FDI and REC positively influenced the EQ of the countries examined. The Dumitrescu-Hurlin (D-H) test results indicated a bidirectional causality relationship between FDI and CE. Additionally, a unidirectional causality was observed from REC to CE. These results suggest that both FDI and REC play a role in improving EQ. The results of the analysis show that the PHavenH, which expresses the view that FDI in the relevant countries causes environmental degradation (ED) in developing countries, is not valid. In other words, it confirms the Pollution Halo Hypothesis (PHaloH), which points to the finding that FDI improves EQ in the countries concerned. In this context, it has been concluded that REC has an important contribution to determining the validity of this hypothesis. The findings of the study suggest that it is essential to formulate policy recommendations aimed at boosting the production and utilization of renewable energy in the seven emerging market economies under investigation. Such initiatives can help enhance environmental sustainability and contribute to a cleaner and greener future for these countries.